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Banking in the M-PESA Age

Over the past 10 years, mobile money has reshaped the way Kenyans send, receive, and store money. Mobile-phone-based products have helped provide the on-ramp to financial inclusion for 24 million people since 2007. The narrative of this success in the international press is almost entirely focused on Safaricom’s mobile money service, M-PESA, and for good reason. As the first and still largest mobile money service, M-PESA is as synonymous with Kenya as lions, elephants, and bad Nairobi traffic.

But M-PESA is only half the story. Many people are aware that total mobile money accounts in Kenya eclipsed the number of total bank accounts in 2009. Fewer people are aware that a second inflection point has already occurred: bank accounts in Kenya today outnumber mobile money accounts by more than 30 percent. Banks in Kenya have discovered new ways to compete and collaborate as they adapt to an increasingly digital and mobile financial services market. For consumers, and especially the poor, these actions have helped to tear down long-standing barriers to financial access and inclusion. Banks have been as much a part of this change, especially in recent years, as have mobile network operators.

This Working Paper explores the key strategies banks in Kenya have used to respond to mobile money. The strategies discussed include direct competition over a mobile channel, such as through Equity Bank’s mobile product Equitel; collaboration with mobile money providers to offer banking services, such as through Commercial Bank of Africa’s M-Shwari; and industry coordination to create alternatives to existing mobile money products, such as the small-dollar interoperability scheme introduced by the Kenya Banker’s Association.

Each approach demonstrates that, while nonbank mobile financial services can fundamentally reshape the financial sector in a developing market, as they have clearly done in Kenya, mobile services need not represent an existential threat to the traditional banking industry. In fact, the reach of models such as M-PESA can enable and even incentivize innovation in the banking sector, including a shift in focus to increasingly lower-income consumers. Kenya’s experience shows, above all, that retail banks can thrive in the face of mobile money, as long as they are prepared to adapt.